Investing under a loved one's name? Here's what you need to know

People often choose to invest money in a family member's name rather than their own for broadly three reasons: Reducing income tax liability Simplifying estate planning Securing children's financial future Let's explore each of them in detail. #1 Reducing income tax liability Investing in the name of a family member who may have no source of income can help you save tax. Suppose you invest in the name of your spouse or child who has no income. In that case, the income that accrues might be taxed at a lower slab rate. However, keep in mind that the government has enacted clubbing provisions in the Income Tax Act to prevent this practice. Nevertheless, there are three cases where clubbing provisions become applicable. Which means you will need to pay tax on the total income earned. The table below summarises the same. Three cases where clubbing provisions are applicable Investor (the one to whom the money actually belongs) Investing in the name of Who pays the tax? Husband/Wife Spouse Husband/Wife (whoever invests the money) Parent Son's wife (Daughter-in-law) Parent

This article was originally published on March 19, 2024.